5 . The Inflationary Boom of the 1920s – Murray N Rothbard

20th Century American Economic History

5 . The Inflationary Boom of the 1920s

Lecture by Murray N. Rothbard

The Industrial Revolution and the development of the modern banking system were the two big things that happened in the Eighteenth Century in Britain. Why does the boom-bust cycle emerge? Is the cycle just a natural part of industry, or is it caused by the banking system?

The Austrian explanation of expanded bank credit not based upon private pools of savings is sound, unlike the Keynesian explanations of overproduction or underconsumption. Inflation is an increase in the money supply.

5 of 8 from Murray Rothbard’s 20th Century American Economic History lecture series.

00:00
their whole kinds of business cycles
00:03
well first of all before mid 18th
00:07
century there were no such things in the
00:08
cycle except maybe in Italian cities or
00:11
something like that very localized scale
00:12
but basically what you had when you
00:17
Scott I think wrote a book some years
00:19
ago some decade ago about business and
00:22
about you know going through all the
00:24
annals of business since seeing what
00:26
happens around from year to year
00:27
prosperity and depression kind of
00:29
situation they find out and cycle doing
00:31
something or business developments or
00:33
something like this
00:34
I mean egos won’t sort of smoothly and
00:36
bingo or everything go smoothly and
00:41
there’s no real business cycle that what
00:43
happens are their individual events
00:44
usually a mess things out for example
00:46
the king will aside the king needs money
00:48
it came the signs of nationalized
00:49
confiscate all the money of the
00:50
Goldsmith’s that’s causes headaches or a
00:56
war begins and will trade if cut off or
00:58
something obviously is a big depression
00:59
or is a big something some kind of crazy
01:03
boom comes in the point is there’s no
01:04
real there’s no real regularity and
01:07
there any kind of any kind of boom bust
01:09
kind of cycle all individual events or
01:12
which could be traced to some kind of
01:13
individual a clear clear out of evident
01:16
chords like the king nationalizes
01:18
another war the couple of tray not for
01:21
example even later much later than this
01:23
when the civil war begins the English
01:26
cotton textile industry which was
01:28
dependent on American cotton suddenly
01:30
gets cut off from the supply obviously
01:32
is a big depression English cotton
01:34
textile industry they later turned other
01:36
sources but points for a while that kind
01:38
of caught short Usami at least why these
01:40
things happen how many how they create
01:44
problems but the others never any idea
01:46
really some kind of a boom bust which
01:49
follows each other some any kind of
01:50
regular pattern and which can’t be where
01:53
there’s no evident cause we can’t say
01:56
okay this is the tool bubble or this is
01:58
something else something something is
02:00
happening which is not self-evident to
02:02
the average observer I guess that
02:07
happens in the mid 18th century
02:08
especially in Britain and the most
02:10
industrial
02:11
country’s most developed countries you
02:14
get you get a sort of moon bus pack and
02:19
from then on economists and other
02:22
observers trying to understand why is
02:23
this happening why is this new
02:25
developments in development of country
02:27
not very welcome especially the bust
02:29
part
02:29
everybody loves the boom part nobody’s
02:32
really worried about the moment but
02:33
everybody’s really concerned with
02:34
suddenly a bust
02:35
particularly the crisis or the panic
02:38
banks fail everything every bankruptcies
02:42
occur
02:42
I think the falling and you don’t know
02:44
what’s going on with sudden crisis or
02:46
sudden timing so that the holes are
02:48
Astoria for example refer only to the
02:50
panic of 1837 or whatever and that’s
02:53
really a not any kind of business like
02:54
I’m really interested in this panic
02:56
problem things really happened to big
03:03
thing big big things happen in mid 18th
03:06
century they have it together they
03:07
happen around the same time this
03:09
confuses the economists are trying to
03:11
analyze the chord two big things are in
03:12
the Industrial Revolution and the
03:14
development of the modern banking system
03:16
and what happened is you have a general
03:21
splitter of two kinds of business cycle
03:23
theories which then develop ever since
03:25
one of which centers of the cause only
03:28
it’s something that happened people
03:29
within the industrial system some of the
03:31
malfunction which is inherent in
03:32
industrial capitalism are ever and the
03:35
other group can pinpoint the cause of
03:38
something and something in the banking
03:39
system the screws on the situation so
03:42
obviously if it’s the banking system
03:43
much easier thing to cure because any
03:46
sort of clobber the banks or somewhere
03:48
in the areas it’s a much much simpler
03:50
thing to get at if it’s something that’s
03:52
deep within the industrial system of
03:54
capital says and then you got all the
03:55
troubles in your hand then you get and
03:57
get people like Marxist a you have to
03:58
scrap the whole business and go over
04:00
socialism well so you have these two and
04:09
the interesting thing is well what
04:11
happens twenty of the twentieth century
04:13
economic before the Friedman ice came in
04:16
a big big number basically not only not
04:20
only delete industrial saw went out
04:23
the audience industry the cause went out
04:26
but the people who claim that banks are
04:29
really the cause were confusing
04:30
simplistic that’s always a big thing
04:32
because it’s so simple
04:33
yeah that really complicated to be
04:35
respectable we have a very complicated
04:36
analysis and what’s going on
04:38
so the accusation of some being
04:41
simplistic stuck free you know hit very
04:43
deep manage to squelch a lot of easily
04:45
the mountain monetary kind of argument
04:49
another thing is this is a very peculiar
04:51
thing history becoming for what happens
04:53
is the really the founders of modern
04:56
scientific economics from and put it
04:57
that way labor the Carter on his group
04:59
really had a monetary expansion of
05:01
business cycle if you look at historian
05:03
histories of economics law and you never
05:05
find this just just this just disappears
05:09
then it’s been plunked down a memory
05:11
hole
05:11
what happens is everybody says yeah
05:15
Ricardo had a and they’ve been huge for
05:17
him had a theory of international trade
05:20
very international trade actually go
05:22
something like this
05:24
and I shall pay and the pipe level so
05:27
gluing species flow mechanism countries
05:33
England France Germany whatever anyone
05:36
else fights the my supply banks regular
05:40
government okay alright thanks like Lisa
05:45
my supply and the my supply goes up in
05:48
England ices go away because of the
05:51
direct relationship between money and
05:52
price level prices are dragged back from
05:57
one with it as the English prices go up
06:02
certain things that happen Natalie now
06:04
we find perfect for one thing the lowest
06:06
prices in our loan will lower
06:07
competitive with French and German
06:08
prices they’re competing for world
06:10
markets in which prices are too high
06:12
those means of the French cut down their
06:15
imports from England English exports
06:21
decline and one of them’s going on in
06:24
which the other English prices are too
06:26
high English they now fuel with more
06:29
money they think they have won more
06:30
money for the banks and also looking
06:33
around finding out that other prices are
06:35
cheaper buy more from
06:36
in Germany in your hands facing whatever
06:38
teleport show up so the direct result of
06:42
this inflationary situation in England
06:44
but money spy going up Bank money going
06:46
up and on prices going them is we have
06:48
exports falling then for it’s going up
06:51
so-called deficit in the balance of
06:53
payments how you gonna a third episode
06:54
the only one way to pay for that person
06:56
that has been told a there’s no such
06:57
thing as bullish change standard on
06:58
linking around foreign currency reserves
07:01
to pay for with gold and because the
07:05
price of the Germans not going to take
07:06
anything except overnight they’re not
07:08
interested in sitting on board of pounds
07:10
it’s only now in a more sophisticated
07:11
age of these these tomfool Germans and
07:14
Japanese except I was sitting in
07:15
eighteen billion dollars worth of
07:16
dollars they can’t do anything
07:17
those days are more hard-headed so they
07:20
come to pay interest on gold we had to
07:22
ship the OLAP Wow he keeps shipping
07:25
Golan Gary came here into a sort of a
07:27
crisis particularly if you have a
07:28
banking system which is you’re paying in
07:31
dole in other words you know you are
07:33
sober let’s let’s say you go make it
07:34
something main situation I think that
07:36
you’re a might have to pay and go you’re
07:39
issuing banknotes or bank deposits you
07:41
have to pay in gold if you keep
07:42
multiplying banknotes here that kind of
07:45
situation here’s the bank the bank says
07:49
we’ll take 10 to 1 or 5 to 1 whatever
07:51
rachel is and those are the positives on
07:53
top of gold they’re expanding the notes
07:56
in the pockets so if increasing the top
07:58
row of the pyramid as a result of that
08:00
they’re losing girls or the bottom part
08:01
keeps dropping so they’re getting more
08:03
and more top-heavy and as again one more
08:05
topic top you get more and more scared
08:07
the situation for redemption in gold I
08:13
think the English notes are getting all
08:14
nervous because here you are your bank
08:16
deposit or you might know Rosa look at
08:18
the balance sheet you finally supply but
08:20
we’re getting less and less but
08:21
fortunately done Osen apology start
08:23
cashing in you know why should i wait
08:25
until a crisis let’s start cashing in
08:27
there this is a great concept of a
08:28
banker running by the way a noble bank
08:30
run when you begin to realize down deep
08:34
in your heart so the bank is really
08:35
bankrupt
08:37
great they’re having out the money that
08:39
they say they’ve got you really sort of
08:40
sport they have they you really need
08:42
Andy they don’t have them you start I’m
08:44
gonna be the first time phone waiting
08:45
cash in and your friends doing your
08:48
authors do it and on the patient panic
08:50
is on so all these things are pressuring
08:52
in on the banking of the English banks
08:54
let’s say and finally the crisis
08:56
occurred English banks are forced I can
08:58
track that car they have to stop up
08:59
there’s a bank runs those guys coming
09:01
from abroad or internally and then you
09:04
got a contraction of the money supply
09:05
and as a microp I contractually have
09:07
bankruptcies and panics and pullian
09:10
loans that everybody’s in very bad shape
09:11
for a while a crisis and then prices for
09:15
some money supply as the prices fall
09:19
we’re gonna have a reversal the
09:21
difference of the balance of payments
09:23
you can’t have a situation as English
09:26
goods are getting cheaper now English
09:30
exports go up and English imports go
09:35
then
09:38
now there’s no nothing not as much
09:40
incentive the bank from abroad and
09:41
anyway people I’m got the money to buy
09:43
from one so that was a surplus in the
09:46
balance of payment the money flows back
09:48
in and we have a double regulatory
09:50
mechanism here so to speak we have on
09:52
the one hand a self-regulatory feedback
09:56
so so speak and a balance of payments
09:58
limiting the deficits you can’t every
10:00
now we have like a permanent deficit
10:01
deficit leaks for 23 years or fifty and
10:04
a have it another day where you have you
10:06
haven’t in the gold standard mechanism
10:07
you have this this limiting situation
10:10
you have a limit on inflation you have a
10:12
limit on
10:13
deficit amounts of payments and this
10:14
regular these regulatory kind of device
10:18
it’s also the vise that keeps the price
10:19
level of more or less proportionately
10:21
throughout the world trading area so no
10:23
one country gets out along with other
10:25
other countries prices the beautiful
10:27
system however it works less well the
10:30
more banking
10:31
exploiting you half and muck things up
10:33
and more regulatory my cousin get slowed
10:35
down by government action
10:36
so anyway this is what every every
10:38
textbook talks about this Ricardian
10:41
humor Carlos be she phones mechanism but
10:44
they don’t talk about it at the same
10:46
time they human Ricardo an embrace
10:47
theory of species full price level
10:49
because they also have a theory business
10:51
cycle it’s a fairly simple theory was a
10:53
pretty damn good one theory is money the
10:57
banks inflate plenty of credit places go
11:00
up and will bloom everybody’s feeling
11:02
good they spend more cetera cetera and
11:04
then finally the banks have to contract
11:06
credit then you have prices collapsing
11:07
concern this is a one stage two phase
11:10
within a scientist make one unit to
11:13
phase the other side well you might have
11:15
well the question is okay let’s say this
11:17
explains one unit why does it keep on
11:20
going like this it’s not strictly
11:22
periodic a regular kind of panic reason
11:27
is part of the theory the banks always
11:30
want to learn to like I hope they might
11:32
always want to expand come on in credit
11:34
they haven’t been able got away with it
11:35
here with everything sort of zero then
11:37
and on but having done after a couple of
11:40
years of shaking out everybody sort of
11:42
forgotten that says the max it back and
11:44
estas over the sound which would
11:45
condition when they could start the
11:47
process up again on the whole thing
11:48
begins once more so uh and this is of
11:52
course added to this is the Tennessee
11:54
the government will in flight for these
11:55
is on big mention before government
11:57
always want to have more money either to
11:58
pay for its own expenses of the
12:00
subsidized favored groups and this way
12:02
together to have a banks inflate the
12:03
money supply so the monetary theory the
12:12
business cycle emphasizing money in the
12:14
banks of the major fourth obvious I
12:16
can’t prove any of this and then these
12:19
lectures here I’ve ever afraid of my
12:21
other writings going to recommended but
12:23
the point is this is sort of the basic
12:24
model you have a finally they do silly
12:30
enough in the early nineteenth century
12:31
the United States everybody thinks of
12:33
American and economics a little eerie
12:35
backward as compared to any much you
12:36
have state they had one shrewd
12:38
realization I think Kristen McGoldrick
12:39
is mentioning them notan deposits are
12:41
really the same
12:42
the English economist you know they’re
12:43
much more intelligent much more high
12:45
tide from the American economist never
12:47
really realizing with too late the
12:49
banknotes
12:49
the man deposits checking accounts of
12:51
the same thing economically that vote
12:52
for the money supply they concentrate on
12:55
the banknotes and refused to they still
12:57
of the man depositors are something else
12:58
that legitimate and I’d follow my supply
13:01
they got the whole thing fouled off as a
13:04
result and when the recordings were
13:08
called a currency school and it passed
13:10
the noble Appeals Act of 1844 as I just
13:13
smash the Dozen cycle once and for all
13:14
by requiring 100% to positive 100% of
13:18
gold back any future inflation of
13:20
magnets and worst if you have you allow
13:22
that tend to want to keep on for
13:25
purposes so the ease the transition
13:27
period you say any further increase in
13:29
those are the positives and those
13:31
consuming must be backed by the same
13:32
amount of gold to impose an on inflation
13:35
airy forever more than the English
13:38
banking system they left after the
13:39
posits because they didn’t think the
13:41
pauses before the money supply and then
13:42
by hand and then is the banks start
13:45
another inflation based purely on its
13:47
checking accounts and this discredits
13:49
the whole peel the whole currency school
13:50
if everybody says I seen sudden the
13:52
banks will be banking business Mike will
13:54
be stopped by appeals and didn’t work so
13:56
the whole currency is school with us
13:57
creditor forevermore yeah sure huh
14:09
[Music]
14:10
ring-ring
14:15
and the thing is very simple kind of
14:22
language does it again this is the point
14:24
where all all the economists agree in
14:25
this particular forum I mentioned but
14:26
many people here might not know it I
14:29
suppose there’s only one bank in the
14:31
country even one back in the entire
14:33
world
14:33
let’s eliminate little governor the
14:34
balance of payments there’s now one
14:36
world government from science assume it
14:38
there’s one world bank the bank of the
14:40
world okay okay as a compulsory monopoly
14:43
with banking system Milken competition
14:45
we have the bank of the world okay back
14:47
in the world man that’s something that
14:49
is a reserve requirement other than have
14:51
to be putting the reserve requirement
14:52
how does the money get created
14:53
I guess we either I simply have posted a
14:57
goal for some reason so an anachronism
14:59
say 1 billion when they ask that column
15:02
[Music]
15:05
this is my ID let’s say let’s say you
15:07
start with a hundred percent reserves
15:08
make a very simple and here you have
15:11
demanded positive notes let’s say the
15:14
man apart from that let this to hear
15:17
another model everybody the way they got
15:19
the goal is my everybody the positive
15:20
million dollars worth ago everybody gets
15:22
it
15:22
yeah I got a checking account matching
15:25
you have 1 billion and ones on one thing
15:27
or the other this is a Sally the
15:29
original Bank of Hamburg and mango
15:31
Amsterdam 100% gold banks I just don’t
15:33
like warehouses you deposit the gold you
15:36
got a warehouse receipt then you have 10
15:37
ounces of gold where you can pick it up
15:39
anytime you want you trade the 10 ounce
15:41
warehouse receipt back and forth so
15:44
let’s say on top of the now that now
15:45
there’s none equation or never instead
15:47
of having a billion dollars ago in your
15:49
pocket you now have a billion dollars
15:50
going in the bank you have a checking
15:52
account of a billion dollars to
15:53
represent it but no increase the money
15:56
supply until opinion now the back of the
15:58
world starts going on its true purpose
16:00
we’re still in fight for the fairly
16:02
cocoa kingdom come
16:04
well it does is its rights out it lends
16:08
5 billion dollars the General Dynamics
16:10
for good and useful purposes what it
16:13
does is what is how does it get the five
16:15
billion and guess it by creating out of
16:17
spending
16:17
the one from the fundamental law of
16:21
banking economics again agreed upon my
16:23
old school is put my authority gonna
16:25
like and the max do not simply borrow
16:27
your money in real ended and create it
16:29
they created by something running out of
16:31
camp saying okay you don’t have a demand
16:33
of positive 5-pin din and and the
16:40
major-general don’t like take the five
16:43
banana spends it on new factories and
16:45
somewhere hiring workers etcetera
16:46
etcetera and then all of a sudden this
16:48
now is an IOU from Daryl dynamic that’s
16:50
five billion we have a piece of money
16:53
supply for 1 billion for six vignettes a
16:55
six-fold increase simply by simply by
16:57
magic just writing anthesis running out
16:59
this account opening up the account
17:01
are there any quicker on there’s only
17:02
one clinker I mean when that is a joke
17:06
first we have at the man deposit the
17:08
General Motors of five pinion then
17:10
general mother spends on all sorts of
17:11
stock roads paper clips wages workers
17:14
and the five billion gets diffused as a
17:16
system so now I have a portion of it you
17:18
have it you know what the industry has
17:20
or whatever but the total is still the
17:22
five in the total is expanded and plated
17:25
money well the only personal clinker for
17:29
the bank of the world Meagan Burroughs
17:30
in great shape there just six couple of
17:32
money supply their only possible problem
17:34
if some of you guys might want to claim
17:36
gold or cash or whatever it is for the
17:38
for Amanda progress then there might be
17:39
in some trouble if you work your hands
17:44
opinion dollars you go to them like two
17:45
big two billion dollars you go to the
17:47
bank for redemption then the bank is a
17:49
little bit of trouble waiting they got
17:50
the money and this is the onlythe only
17:53
check on the bank of the world of course
17:55
the next step is it have the clear that
17:56
eliminate the gold fan and if I other
17:58
bank of the world legal tender so the
18:00
only thing the bank does can’t be
18:01
redeeming your than you and you’re home
18:02
free get it wait forever okay so they so
18:06
the banking system up but you don’t have
18:09
a bag of the world you have all sorts of
18:10
thousands of thousands of bank in each
18:12
country each Bank of peeps or the other
18:14
and each code break a piece of the other
18:15
for the sis but if you can get all these
18:17
back them so the only the only check is
18:19
not only English banks I was saying
18:20
before but the French banks calling for
18:22
redemption trust me internal English but
18:24
that’s not very brave but if you if you
18:26
can mobilize the whole system like the
18:28
Federal Reserve System mobilizes
18:29
country you mobilize the whole system so
18:31
the banks don’t really compete so they
18:33
were all getting reserves together and
18:34
all and do someone fight together but
18:36
you don’t have to worry about one bank
18:37
catching another bank because they all
18:39
happen just as many people on the other
18:41
bank trying to redeem from the first
18:42
bank everybody’s contacted the clearing
18:44
house settled the whole business
18:46
you can keep inflating forever so the
18:51
only problem comes this Redemption and
18:53
during the leaders during the free
18:56
banking period before the Civil War it’s
18:59
all that said of the one who want banks
19:01
Wildcat banks expand and I mentioned
19:02
before the reason why the bank as much
19:05
inflation as there was which wasn’t
19:07
really that great so someone work is
19:09
because every time the nice really got
19:11
into trouble a massive scale of state of
19:13
federal government said okay you don’t
19:14
have to pay any more for a while you
19:16
don’t have to pay any gold this permits
19:18
the inflation to continue what I’m using
19:20
thing in 1890 1928 because I think 1820
19:24
is the correspondence between David
19:26
Ricardo I’m gonna the most eminent
19:27
economist in the world and condi reggae
19:29
was a excellent economist in his own
19:31
right from Philadelphia hard money man
19:33
and Connie your guy he’s trying to
19:35
explain the Ricardo the American banking
19:37
sister situation and having great deal
19:38
difficulty and he’s saying nobody’s a
19:42
problem he’s inflated and nobody’s you
19:44
know then Noga the banks are still there
19:46
increasing the money supply nobody can
19:47
redeem any money in gold and so forth
19:49
but Carla’s running Magnussen’s what do
19:51
you mean they can’t redeem ago to
19:52
illegal we can’t can’t he can’t
19:55
the bank’s can’t it’s just on somebody
19:57
paying them their debt and they’re not
19:59
pay their own dad how can I get away
20:00
with it why they still an operation
20:01
while and they able to close that but in
20:03
the nonsense
20:04
so room so raw gay rights back to them
20:06
and said look mr. Corey you’re ready
20:09
Connors we love you and so forth but
20:11
your understanding American banking in
20:13
the United States everybody these are a
20:14
bank that would director or stockholder
20:16
or he owns money of the banks anyway and
20:19
always the only business of the banks in
20:22
some way so if any outsider wonders in
20:24
the situation is not in one of these
20:25
categories and trying to redeem his
20:26
money the fact he’s immediately cobber
20:27
over everybody that’s alleged driven out
20:29
of town is over and so on so again we’re
20:32
comfortable is probably never able to
20:34
figure this figure this have feeling a
20:36
loss America right
20:41
this is the what happens with the peel
20:43
back people currency school thinks the
20:45
man deposits are not really money’s only
20:47
banknotes banknotes is one form
20:50
warehouse receipt and bank deposits or
20:51
another Connie reggae and the American
20:53
hard money people American Recordings
20:54
though William guj and people like that
20:56
understood it understood the man
20:58
deposits are following supply but they
21:00
couldn’t influence the recording
21:01
recording wouldn’t paying attention of
21:02
American economy so these clocks over
21:04
there will let you know where we are the
21:05
big shots so there was no Hudson with my
21:08
of America comments on the English
21:10
economist even though there was of
21:11
course the other way so they never able
21:13
to get it to the scholars until was too
21:14
late in the home jig was up
21:32
well the next step in this this process
21:36
called the front for the first
21:39
essentially made by convict’s island we
21:42
found our Swedish economics in my living
21:44
von Mises and the meetings which are
21:46
given to you committed to you are you
21:49
add on to this model
21:51
smaller than money in prices going up
21:53
and down a thing the key is something
21:55
else something else makes the business
21:57
are much tougher in a sense of being
21:58
more intractable once it gets started
22:02
something else is in the process of
22:04
inflating the money supply and inflating
22:06
bank credit you’re not only raising
22:08
prices that’s bad enough you’re also
22:09
doing something else which is even even
22:11
worse you’re messing out the whole
22:12
production system you’re messing up the
22:14
sort of things which business will
22:15
invest them you’re distorting the whole
22:17
production process and creating the
22:19
creating a necessity of a later
22:21
recession their current to correct it so
22:23
now we begin to have a situation where
22:25
this model you sort of look at the in a
22:28
way you can look at the recession is
22:29
unnecessary if the government somehow
22:31
stabilizing the whole thing and ruins it
22:34
out you won’t have any problem they can
22:36
look at the the boomers essentially not
22:38
just a happy time before the recession
22:40
what is it it’s really the worst time
22:42
because this is the boom of the time
22:43
where you have a distortion of
22:44
production then Lee then it’s important
22:48
to allow the recession its head allow
22:50
the recession through the iron out and
22:52
correctly is distortion as quickly as
22:54
possible
22:54
they over want to go back and formal
22:56
kind of pattern the assertions are for
23:01
inflation romantic creditor essentially
23:03
over investment in the capital goods
23:05
industries only so called remote orders
23:07
of production on the higher orders and
23:08
productions the Austrians put it other
23:10
words things like dams machine tools
23:12
construction those things which are most
23:15
remote from consumer goods and these are
23:19
the things which yet over invested in
23:20
other words there’s an under invest
23:21
because of the faculty banks are
23:22
expanding a plating credit that pushing
23:25
the rate of interest below the supreme
23:26
market rate they creating a situation
23:28
where too much is invested in the higher
23:31
orders of production than machine tools
23:33
and moment industrial material etc not
23:35
enough a consumer in good have this
23:36
distortion so the windibank and you have
23:38
to keep doing is you have to keep
23:39
inflating he won’t stop I had a
23:40
retribution which is of course coming up
23:43
and imposing with an alcohol acquitted
23:46
II crisis in an industry if you think
23:49
you can borrow another ten ten million
23:50
you can’t do it how you gonna pay for
23:52
this extra costs so once this process
23:56
stops make sharing process stops then
23:59
these distortions are reveal we find out
24:02
the business is over invest in all these
24:03
projects and these plants and the whole
24:05
thing has to be liquidate as quickly as
24:06
possible to get workers and resources
24:08
and equipment back to the consumer goods
24:10
industry to starting on a sign of
24:13
situation that’s in very brief terms the
24:15
Austrian theory what it does is its
24:20
policies its policy conclusions are very
24:22
simple politics even though the theory
24:23
might be fairly complex
24:25
apology concluded is that says the
24:27
government if you’re inflating stopping
24:29
if you’re in a recession don’t do
24:31
anything I was the thing all right as
24:33
quickly as possible in other words a
24:34
very very extremely fair policy in this
24:36
area in the 1920s this is reflected as
24:45
well over the next time in the over
24:48
investment in capital goods industries
24:50
particularly those areas where which
24:52
reflect the value of capital thought the
24:55
stock market and ran which are purely
24:56
capital oriented kind of thing there’s
24:59
not only only I was hope this is the
25:01
exact opposite sort of explanation of
25:03
the usual popular explanation for the
25:05
pressure or the candy and explanation or
25:06
depression
25:08
usual explanation is over son you’re in
25:10
a situation where Hispanics set up all
25:12
the retailers and businessmen they can’t
25:14
sell their product and so the big cry is
25:17
under consumption consumers don’t have
25:19
enough money to pay for the you know
25:21
hula hoops and the Wheaties and sort of
25:23
stuff or you can say is overproduction
25:26
somehow we’ve produced too much as to
25:28
the NRA kind of thing you have to cut
25:29
that production so systematically
25:31
chopping up the pigs and quartering with
25:34
eggs today’s order of pigs reduce
25:38
production there’s too much that cause
25:39
the recession if you look at the whole
25:42
thing is a series of nonsense policies
25:44
involved in all of us the idea you can
25:47
have overproduction when half of people
25:48
are starving is pretty pretty absurd
25:52
there will never be overproduction till
25:54
you reach the Garden of Eden you ever do
25:57
until then we there’s always scarcity as
25:59
as far as I’ve been talking about
26:00
legally abundance personal scarcity no
26:02
such thing as abundance and technical
26:03
economic sense so everything is scarce
26:05
if it weren’t scarce its price would be
26:07
zero we will we will find out if we will
26:11
find out then when from the liberal
26:14
intellectuals are really over after the
26:16
one we will discover this when they
26:18
start burning their salary checks our
26:20
salary increases
26:21
nobody has I know of has been burning in
26:23
salary increasing well that happened to
26:24
be looking around again but basically
26:27
the point of overabundance is only the
26:29
test of over Ramona’s is when
26:30
everything’s free when you wish for the
26:32
Pepsi and a Pepsi is pouring down your
26:33
throat
26:35
can we get that stays our scarcity the
26:41
Garden of Eden the other the other thing
26:47
is under consumption on their
26:49
consumption the other because that’s
26:50
another very peculiar thing of you if
26:52
you look at it how come by consumer
26:54
suddenly have lost some money before
26:55
that and before October 29 or whatever
26:58
lean whatever the 1907
26:59
consumers have plenty of money I’m
27:01
Rachel all of a sudden has no no thanks
27:03
– man that’s kind of peculiar – if you
27:06
look at that you find out what the
27:08
consumers really saying about the silver
27:10
production on the consumption thing is
27:12
it’s not that they can’t sell their
27:14
products well nonsense you always
27:15
thought your product if you if you have
27:17
too much if you invested in too many
27:19
hula hoops
27:20
and the who love them craze disappeared
27:22
you stuck with ten thousand who loves
27:23
everybody else’s welfare on the frisbee
27:24
frisbee gang you can get rid of the
27:27
whole lot you can sell them even some of
27:29
my charting a penny apiece may you’re
27:30
paying people like they like it you know
27:32
what you can always sell it no the only
27:34
thing you wear yourselves by lowering
27:35
the price that’s the one thing they
27:37
don’t want to do because that wouldn’t
27:38
either Beach maybe suffering severe
27:40
losses so the whole point is not so much
27:42
as another consumption but the whole the
27:44
whole point is for some reason
27:45
businessmen have paid too much they bid
27:47
course up they bought this hula hoop
27:49
sort of frisbees or whatever for prices
27:52
it turns out to be too high or relation
27:54
of the prices they can sell it for the
27:56
next guy damage assumption chain so for
27:58
some reason there’s been a cluster of
27:59
entrepreneurial error everybody somehow
28:01
is bought all the stuff of ten thousand
28:03
dollars a case they can only solve the
28:04
3-sum other case the problem is in the
28:06
price system something has happened to
28:07
screw up a price system and the problem
28:10
is over bidding of course and when the
28:12
course for over a billion forces the
28:14
desert by the Austrian theory which is
28:15
that businessmen have been induced by
28:17
the cheapening of credit the artificial
28:19
expansion of credit into the business
28:20
system the bit up wage raise a bit up
28:22
cost too high in relation to that
28:24
because of this inflationary credit
28:26
expansion to my relation what they could
28:28
be doing would be getting in the free
28:30
market when this whole expansion process
28:32
stops look at any business cycle
28:39
including the 1929 depression if I have
28:41
a consumption this reason are pretty
28:42
relatively pretty good shape I mean
28:44
they’re less depressing than the
28:46
construction of machine tool industries
28:48
so the for example retail sale which
28:51
every by all the papers you know you
28:52
look at the looking for the business
28:53
cycle the first thing I look at is
28:55
retail sales how’s the healthy economy
28:56
retail sale great shape so every we’re
28:58
doing well the thing is retail sales
29:00
almost always in great shape they only
29:02
from 1929 1933 they following something
29:05
like 20% which is it felt less than it
29:09
almost anything else the same time
29:11
productive manufacturing production
29:12
construction was flowing by huge amount
29:14
seventy-five percent ninety percent
29:15
eighty percent whatever so the pressure
29:17
always hits the what happens in other
29:19
words nothing function a good handle
29:22
does industry the function industry
29:27
wrong with something like this
29:31
the cattle are those he is wildly going
29:33
up something like that
29:35
so the much bigger bloom in the capital
29:38
in those industries and a much bigger
29:39
depression in the camp of those
29:40
industries but you gotta bear that the
29:42
Austrian point I think over inflation of
29:44
the capital industry then the whole
29:45
thing collapses as you readjust back to
29:47
the free market kind of situation I may
29:51
as well conclude with a story here about
29:57
unions of construction and so forth
29:59
which will like them the role
30:01
relationship between wage rates and
30:03
unemployment I’ll get to later anyway
30:06
this has told to me about Leo woman my
30:08
professor who’s extremely expert on all
30:11
the things in union labor affairs which
30:13
don’t get published one reason or
30:17
another
30:17
in this case we have a construction unit
30:19
I said was has always been powerful then
30:22
enormous depression of construction
30:25
history have been over construction in
30:27
New York of every crisis from 20s as
30:30
well in Manhattan really Union is very
30:32
firm and consistently on the broom level
30:35
wage rate so here we are and I think 33
30:36
and prices have collapsed all over the
30:39
place and construction is down almost
30:41
zero and the unionist system just as
30:44
high wage raises a hand in 1929 which
30:46
means the real wage rates and was wage
30:48
rates in terms of purchasing powers way
30:50
way increase as a result there’s no
30:52
construction in Manhattan no buildings
30:54
stops the other hand Queens
30:57
we have also construction unions and
30:59
clean the unions were smaller than the
31:01
employers are small more personal
31:03
relationship there you hire five people
31:05
instead of 500 so in Queens there was a
31:07
secret deals between the construction
31:09
employers and construction unions well
31:12
they say look yeah we really sat down
31:13
because I say okay we realize this the
31:15
danger having no construction role going
31:17
on see what’s going on Manhattan there’s
31:19
no buildings being dope so okay we can’t
31:22
we can’t officially say we will accept
31:23
the 30% wage cut website but what we’ll
31:26
do is we’ll keep the same wage rate and
31:27
we’ll kick back 30 percent on the knife
31:29
and as all the ladder than construction
31:32
relatively flourished and clean there’s
31:33
only a small drop are much smaller
31:35
rather than Manhattan and queens
31:37
construction because of these because
31:38
you need to only to accept much lower
31:40
wage rates under the table because they
31:42
couldn’t break union solidarity
31:45
officially okay so this this sort of
31:49
introduces the bus there in my theory I
31:53
just want to set the stage for the
31:55
twenties just for a minute by saying
31:57
what happens after World War one the
31:59
point is that 1940 since 1914 the entire
32:03
international monetary system was meant
32:04
kaput basically the state of advanced
32:08
decay the sewer to chaos etcetera the
32:11
Golden Age was a for a t14 such like may
32:13
15 1914 where the classical goes better
32:16
and ever since then we’ve been trying to
32:18
get the good parts of the International
32:20
gold standard without the headaches not
32:22
the disciplines alcohol which
32:24
governments would have to regiment
32:26
themselves and so were they so what you
32:29
have is essentially a civil war I think
32:33
I mentioned all the countries except the
32:35
United States were rougher go over there
32:36
they won’t fight it we now begin to see
32:39
the hubris of Great Britain before World
32:44
War one great bread was the great centre
32:45
of International Monetary Affairs
32:46
international financial dealing London
32:48
was the great center over the heart of
32:50
the both manner but now the pound was
32:52
depreciated I think the paranoid that is
32:54
something like Piazza fifties nets 1920
33:03
the basis with the different weights of
33:05
gold definitions of the dollar and
33:08
definition of the pan the word vassal is
33:10
all the legal report on how the people
33:14
report on any expense classical 19th
33:18
century this have been the fixed thing
33:20
is now part of the British heritage
33:22
all of a sudden apparently 50 we have a
33:24
pan have been inflated inflate the
33:27
currency the price and this price on
33:29
world markets gets cheaper so now the
33:31
question is what was Great Britain do
33:32
what do you do about the situation he or
33:34
have the war is over the pan is
33:36
depreciated you have several options
33:37
open to you one option would have been
33:43
to cut your losses this is what this
33:45
would have been the rationale on P
33:46
alright cut your losses say okay it’s
33:48
too bad we’ve insulated and we have much
33:50
more many more pounds in circulation we
33:52
have a floor and the powers have to be
33:54
50 will go back and gold fan of the 350
33:56
courage of all the other countries to go
33:58
back up a current level and we’ll start
34:00
from there I’ll cut our losses this
34:02
would have been the rational thing that
34:03
was almost nobody is in favor of it
34:04
typically typically the rational option
34:07
virtually nobody maybe more to
34:09
economists maverick economist even there
34:12
so yeah this is really the easiest thing
34:13
to do simple as you have less headaches
34:14
got all this out options caught that by
34:18
going back to go with it the new has a
34:21
new levels so that’s one option
34:28
that’s that’s of course that doesn’t
34:30
mean a consideration much less they not
34:33
serious study the Confederation of
34:36
adopted the idea of going back at the
34:38
old level going back in the old 46
34:41
Brittany in Britain British heritage is
34:43
now for tactics we can’t accept the
34:44
devalue pound that’s a terrible thing
34:46
I’ll credit will be doing this over and
34:48
so on we have a quixotic it’s exotics
34:51
decision to go back at 486 or the third
34:59
plants of the planet of the left-wing
35:01
crazy so there’s big in those day least
35:03
I said oh no they of abandoning a little
35:05
together and just go over to fire
35:06
currently this is not this is this is
35:11
the minority which bigger than the
35:13
rational mine are must’ve met but not
35:15
very strong yet okay so we go back forty
35:18
sexy when they go back at 46 by the way
35:22
the going who does that mean I was
35:24
chancellor of the exchequer in 1925 I
35:26
guess it was on a decision when the
35:28
thing was finally completed the
35:30
Chancellor to check the time listen
35:32
spencer-churchill
35:34
the ranks are farther than my personal
35:36
values I got somewhere along there with
35:37
literal Wilson Herbert Hoover right
35:40
what’s the Churchill guess we have to go
35:44
back at 46 and general Maynard Keynes
35:47
prices for I love he’s down the only
35:48
good thing he ever wrote which is the
35:49
little pamphlet called economic
35:50
consequences and Winston Churchill
35:53
pointing out the you know the plenty I
35:56
predicting what was going to happen
35:57
because fantastic mess because of this
35:59
insistence are going back at the old 46
36:02
part and so now the bridges are thought
36:08
to go back 41 this mean I can you go
36:10
back for
36:10
means that now that the British pound
36:12
even though the its price that’s good
36:15
they’re priced essentially at 350
36:17
everywhere and he’s a British the price
36:18
of British goods will be an astronomic
36:20
compared to other markets I mean British
36:21
the British x-force will be frozen out
36:23
of world markets he’s really pleased I’m
36:28
gonna take kind of policy so especially
36:31
here due to the fact in English England
36:33
lives off imports it was a very small
36:35
country they import food and so forth
36:38
and so on and their major exports were
36:40
coal and textiles and ship shipbuilding
36:43
and these were sort of declining
36:45
industries anyway these are industries
36:46
which is pretty well how exactly have
36:48
had it but I mean their hand is on the
36:52
horizon for coal and textiles and
36:54
shipbuilding but anyway those days are
36:56
so pretty strong so England has to have
36:59
cheap export may have to have a
37:00
competitive home export system but here
37:02
Lee here we impose enormous burden on
37:04
the export industry we’re saying as the
37:06
coal and textile ships are going to be
37:07
twice now something like 30% higher I’m
37:10
in Berlin for this whole policy meeting
37:13
in fact so Britain is now Britain has a
37:16
problem they’re committed to this 46
37:18
nonsense
37:18
I committed at the very high prices what
37:21
can they do about how can they how can
37:22
they survive matter fact what happens
37:24
during the 90 all during the 1920s and
37:27
every other economy was booming right
37:28
space Europe
37:29
Brittney’s economy the press Britain had
37:31
40 years or 20 years oppression because
37:35
Britain has very heavy exports weren’t
37:37
going and they have very heavy
37:38
unemployment the export industries so so
37:42
what do you do about it well several
37:46
things we eat you want to given this
37:48
they’ve given us insane matrix here the
37:50
rest of the British policy of extremely
37:51
cunning and Machiavellian for the help I
37:54
mean with an unworkable policy they did
37:56
the best they can what do you do first
37:59
of all they couldn’t eat the clams of a
38:01
possibility flight I mean the 19th
38:03
century policy is alright you want to go
38:05
back at 46 our price is now 30 percent
38:07
higher than the competitive we forced
38:08
the price level down 30 percent by
38:10
lowering the money supply by 30 percent
38:13
we put the economy through the
38:14
stationary ringer now that would have
38:16
been done in the old ways they couldn’t
38:18
do in the 20s because they felt they
38:19
couldn’t do it because now we have after
38:22
World War one we have
38:23
strong unionized system bolsters and
38:25
Britain both survive right a big
38:26
unemployment insurance national
38:28
unemployment surance scheme that means
38:30
any you need any worker that strikes me
38:32
zip over the unemployment insurance
38:33
bureau and get us get his page and then
38:35
impossible to deflate they probably
38:37
would have been ninety percent
38:39
unemployment the wage rates have been up
38:42
there so they felt it was politically
38:44
impossible if they had a real if they
38:45
have the guts to do it had a really
38:47
strong lead a fair tory type i could
38:49
have done it perhaps but anybody felt
38:50
they couldn’t do it a lot of labor
38:53
unrest and general strikes and all that
38:55
and so they forget they couldn’t be
38:57
flight and I couldn’t not go back at 46
39:00
over there the cookie-cookie
39:03
original decision so maybe they feel bad
39:05
they wanted to keep inflating as a
39:06
matter if I want to continue to have
39:07
cheap money and plate some more and get
39:09
around Union wage rates that way so here
39:11
they do they want to inflate not be how
39:15
can how can they manage this
39:17
well basically two ways one getting
39:19
everybody else to go back the gold
39:21
standard and are overvalued drachma was
39:24
if you’re Bulgaria your key third cars
39:28
Ian de Beauvoir anyway and he was the
39:32
thing if it Britain had a total
39:33
political control of Europe by this time
39:35
sort of League of Nations which was
39:37
essentially British outfit a financial
39:39
committee of League of Nations run by
39:40
the British Bank Bank um anyway so what
39:43
you do is you can use those experts be
39:44
millions of Bulgaria and every police
39:46
and must be the other place you can get
39:48
your mitts on you tell them we want you
39:51
to go back in the gold standard no no
39:53
that’s quiet money no those thing here I
39:55
should go back to those found on being a
39:57
very highly overvalue with a drachma
39:59
bogart currency is the old car
40:05
amiga Bulgaria exports in our big
40:07
trouble and English exports to or Gary
40:10
are not cheaper so in other words the
40:13
British policy then becomes is cunning
40:15
Machiavellian policy of getting every
40:16
early European countries over value of
40:18
their currency and go back to the old
40:20
fat level and the workout system of the
40:23
United States so we’re gonna change
40:25
stance on surrounding tomorrow night and
40:28
and use the ice ice is sort of a sort of
40:31
a patsy in this whole situation
40:33
and then for sorry I couldn’t force
40:35
inducing a slice through various Ryerson
40:38
attorneys who will fight also because
40:41
those are the major and unmoving role to
40:43
us but we kept inflating we kept our
40:45
inflation and pace with the English
40:47
inflation and betting them but not after
40:50
lose though so during the whole 1920 the
40:53
whole International Monetary picture is
40:54
a series of shoring up measures to help
40:56
Britain I hope I can get out of the
40:59
consequences of their decision go back
41:01
at 46 thank you okay back to the
41:09
nineteen twenties inflation one point
41:12
four exact name of the trade of fun
41:15
about the Austrian business cycle theory
41:17
I shall personally I should have made
41:19
clear that I said there were two types
41:21
of theory a causal theory food banking
41:23
the money in banking in one hand and and
41:25
learning it in an industry and the other
41:27
I was placing myself in Washington
41:29
Theory the monetary camp or were them an
41:32
explanation that explains the cycles
41:35
from being as being generated through
41:37
this kind of banking bankroll inflation
41:39
the idea being that all sorts of such
41:42
patients could take place in free market
41:45
I mean a seven-year locusts industry for
41:47
example I have no say on the seventy
41:49
locusts comes every seven years and it’s
41:51
not much of a seven-year locusts
41:53
fighting industry to do the others the
41:55
other sixty years
41:56
they sort of go out of business they
41:57
fade into something else the seventh
41:59
year comes along a magnificant business
42:01
again so the rock slug is your situation
42:03
but then there’s no need for them to be
42:05
general across the whole system and mess
42:06
up the whole and women core rate
42:08
unemployment bankruptcy and it should be
42:10
fairly predictable punctuating much more
42:21
intensively
42:23
much greater degree than the consumer
42:25
goods industry so this means that in the
42:28
and the recessions what’s really going
42:31
on here is the capital good ministries
42:33
are collapsing and their prices are
42:35
going down much faster and the capital
42:37
industries and they are on consumer
42:39
goods industries and this shifts the
42:41
price of price behavior serves to
42:44
readjust resources Ryan land labor and
42:46
capital back
42:46
from the over investment capital
42:47
industries into the consumer goods
42:49
industry another one due to the
42:51
reshuffle on your resources and that’s
42:55
me event let’s say yum it’s a consumer
42:58
good prices are down by 20% a big
43:01
depression and machine to prices when am
43:04
i 45% what’s really happening here is
43:06
the consumer goose prices are going up
43:08
relative to other prices so in other
43:12
words the idea of consumer goes are
43:14
rising in a recession it’s not really a
43:16
new thing it really happens every
43:17
recession the reason why nobody’s seen
43:20
this until fairly recently is this at
43:22
every other recession till 1958 nothing
43:25
every classically session is also been a
43:26
contraction of the money supply
43:29
one-shot model here so my spies 11 boom
43:33
and collapses and the depression and the
43:35
bank credit contraction as that happens
43:37
the whole boiler will actually move
43:39
downward so the old prices are flowing
43:41
and this is sort of an example consumer
43:45
those prices fully Brent 15-20 percent
43:47
Cavill those prices falling around 45
43:49
percent so a consumer when he’s looking
43:51
at this he’s satisfying the subsidy you
43:53
know police consumer those prices are
43:54
falling but relative to other prices
43:58
consumer goods prices are going up
43:59
supplement but this this situation is
44:02
masked so the speaker offset by the fact
44:04
that all prices are falling due to this
44:05
monetary contraction so the Audion
44:09
doesn’t sigh clear explains the reason
44:12
why consumer goods prices go up
44:13
relatively to other prices what’s
44:15
happened is in the last of starting the
44:17
58 really starting in the 30s when you
44:19
get right down to it the inflation of
44:21
the 30s took place prices were going up
44:23
in the middle of a big depression the
44:26
stocks in 58 again and then 69 71
44:30
where prices consumer goes prices
44:32
particularly keep going up please one of
44:34
the explanations for this is that the
44:36
there is now the rule on political rule
44:39
in the United States of bank credit
44:40
money money supply macro action I’ll
44:42
never be allowed with full again the
44:44
money supply can’t fall over again this
44:47
means the price level won’t fall over
44:48
again so the price level process of the
44:51
whole price levels flowing which is
44:53
masked this process and now it removed
44:55
the bail up taking off
44:56
it’s strip away one bail you find out
44:58
fine but I got consumers those prices
45:00
are going up another session it’s a
45:01
monstrous thing but the point is it’s
45:04
been happening all the time that’s
45:05
because it’s effective it offset by
45:06
deflation this is one of great things
45:08
about the flesh great thing about
45:09
deflation is the good thing about
45:11
depression is the prices for the point
45:13
of you consumer which is it should be a
45:15
general point of view my father for
45:18
example those who happen to be employed
45:20
during Great Depression really pretty
45:21
well my father’s my father’s most
45:23
prosperous time has entire life during
45:25
Great Depression of the 30s he happen to
45:28
continue to be employed and prices would
45:29
come on collapsing and Wars furniture
45:31
zones over and so on so but now we have
45:35
a situation do the Keynesian the wise
45:37
and wise measures of the Keynesian
45:39
economics and various Democratic
45:42
Republic administration we don’t have a
45:44
situation where every time we have a
45:45
recession we won’t be able enjoy falling
45:47
prices the trends are going to keep
45:48
going up you’re gonna suffer the worst
45:49
of both of both worlds so to speak we’re
45:52
gonna have bankruptcies and unemployment
45:54
after a southern falling production and
45:55
prices going out between beautiful
45:57
system look forward to so this
46:03
essentially is what happens well either
46:04
the meaning of the Keynesian or the
46:05
freeman.i personal theories have any
46:08
inspiration for the song in terms of the
46:13
consequences on the micro system so it’s
46:15
the of the macro so as a matter of fact
46:24
well this is a favorite story of her
46:25
which I repeated at least a dozen times
46:27
or so much I’ll repeat again and it fits
46:29
in a great great story my one of my
46:33
professors of Columbia was going to
46:34
graduate school with author around burns
46:36
when those days of the high theorists
46:39
and not interested in politics and he
46:42
was tapped by the rockefeller axis and
46:45
when Eisenhower of a president he became
46:48
the chairman of Council of Economic
46:49
Advisers and when he left the when he
46:52
left this Adelie it’s a simple thing
46:54
that what happened to Professor you know
46:56
hundreds government because before he
46:58
left for Washington his lectures were
47:00
fantastic when he has a theoretical
47:02
analyses of Keynes who Chamberlain
47:04
but when he gets back from the
47:07
government after so many years several
47:09
years in the head of the company gummy
47:11
Mars is righteous consists of story
47:13
anecdotes about what he said the
47:14
Eisenhower my house up to him when he
47:16
said the Rockefeller and somewhere it’s
47:17
don’t wanna go go
47:19
history of his life and any right it
47:23
gives us the series of lectures during
47:25
just as he was getting out every gotten
47:27
nap
47:28
and just when the recession of 58 was
47:31
hitting which was the first time when he
47:32
was officially recognized he had this
47:33
peculiar phenomena of an inflationary
47:35
recession and aphasia nary recession
47:37
violates all the rules while Keynesian
47:39
ruling on every my and were you supposed
47:41
to be doing in a recession the Cornelia
47:43
Keynesian is when you see a recession
47:44
you pump spending into the system gets
47:46
deficits pump spending in prime the
47:48
public sector and lifting lift the
47:50
economy up at least in the old Chicago
47:52
School Theory you pump money into the
47:54
system you know you don’t bother
47:55
spending you must raise money to pawn
47:57
you pump that in and then you collect ik
47:59
types I don’t want to choose between
48:00
Keynesian Chicago and so you pump both
48:02
them and push a little push both stops
48:05
you’re pumping spending and you pump you
48:07
have deficits and why not you have an
48:09
increased inflation and then you’re
48:12
supposed to do in that you see a
48:14
reflection if you go to the other side
48:17
of biology and say okay now we pull
48:19
spending out of the system by raising
48:20
taxes or we contract the money supply or
48:22
whatever and so all of a sudden here we
48:25
have a cinch n but all this arrest this
48:26
is the sort of contrast cyclical policy
48:29
and its goal rests on a couple of key
48:30
assumptions one of which is but all the
48:33
things are moving in the same direction
48:34
in other words the jury and money prices
48:36
are going up and spending is going up at
48:38
cetera and during a recession prices are
48:40
falling and you have bankruptcies and
48:41
unemployment so Farnsworth’s are
48:44
outlining this whole conference I was
48:46
supposed to be I was in neutral I
48:47
suppose being in flamenco observer this
48:49
thing I couldn’t refrain from plunging
48:51
into the situation this is my warrant so
48:54
I said well president burns isn’t during
48:56
question for you know what happens if
48:58
you have Cathy and have us inflationary
48:59
recession and what happens what would
49:01
you know what policy who advocate we’re
49:03
in a recession and prices are going up
49:05
and how employment hole or everything
49:07
else is flowing on point is increasing
49:08
consent so he says well it’s not going
49:10
to happen as improvements fifty-eight
49:12
recession is almost over in two months
49:14
we’ll be out of us is no real problem
49:15
okay you know conceding that
49:17
but what would you advise if sometime in
49:20
the future we will have an inflationary
49:22
recession
49:22
he stops a minute he says why only says
49:26
he’s spoken salió he speaks like WC
49:27
Fields without the humor this is weak he
49:30
says when I can’t
49:35
so I he has no design of course nobody
49:39
resigned during this but that was the
49:41
really an admission of fact that the
49:43
these people really have no answer
49:44
doesn’t return come and set up okay back
49:48
to the 1920s I think that’s another rule
49:55
a forest we concede another world we’re
49:57
on bureaucracy nobody ever resigned I
49:58
mean so like one once once in a million
50:00
somebody actually gets out speak listen
50:06
used to call boring from within or
50:07
something okay so we have the yam in one
50:14
of this and this pickle is I don’t mean
50:17
that
50:22
okay any one single nut sets out on its
50:26
grand design grand design of coning
50:29
bludgeoning whatever all the other
50:31
countries will inflate to go European
50:33
countries to go back of the gold
50:34
standard overvalued zotti or whatever
50:35
the currency is and the United States
50:38
play along with the system see the the
50:44
British point of the grand British plan
50:45
was unfolded of the General Conference
50:47
of 1922 which is very little-known with
50:50
textbox1 the key you know the key events
50:52
in modern 20th century monetary history
50:55
it was engineered the theoretics of it
50:58
was worked out by another memphis
50:59
athenian economic theorists working for
51:02
the Bank of England Sir Ralph fortress
51:04
we distinguished economists
51:08
works and works at least the essentials
51:10
of his plan but the big cloud the person
51:16
running the English Mont monetary system
51:18
during this whole period the head of the
51:20
Bank of England Bank of England Montagu
51:21
Norman key figure in this whole business
51:25
why do you Norman
51:27
used to have it here he really the
51:29
conspiracy theory works beautiful you
51:31
hear me almost almost acknowledged by
51:32
everybody feeling was home because I
51:44
haven’t like Norman and Benjamin strong
51:46
on a constant series of secret
51:48
conferences and I really were secret the
51:50
strong didn’t want the Washington
51:51
authorities to find out about it it was
51:53
a certain suspicion of England among the
51:54
Midwest masses and so forth and
51:57
Washington like this home while she was
51:59
upset in one of they know what’s going
52:01
on here so strongly Norman have secret
52:03
confident and what they do every year
52:05
every six months been strong with you
52:07
know what sort of stretches its arms one
52:09
day I sure wouldn’t follow the car I
52:12
think we have a Saratoga for vacation
52:14
they go up to Saratoga River vacation
52:16
check-in and a hotel here meantime
52:18
Norman was zip over not telling any
52:21
anybody in the depressed he would come
52:22
over the same hotel in Saratoga he
52:24
registers professor Skinner some reason
52:26
check up about why why you this alias
52:28
professor yeah nothing to do with
52:29
psychologist Skinner and he registered
52:32
the present Skinner they had these
52:33
secret talks and and then women slips
52:35
out in the night stroll slips back and
52:37
so there’s a very strong connection I’m
52:40
most historians interpret this I do a
52:43
little bit myself of a normal sex is
52:45
exerting a sort of Spang Spang golly
52:46
personal influence I’m strong well I
52:49
might have been some of them involved
52:51
but one of the things which is usually
52:54
overlooked of courses here it now and
52:58
you know say this in units under the
53:00
influence of the Morgans legend is
53:04
strong for dissenters it was originally
53:06
Morgan representatives in this whole
53:08
thing with Montague Norman first of all
53:10
the the JP Morgan company continues to
53:13
be the fiscal agent of the bank of Bank
53:15
of England during this whole period they
53:17
acknowledge fiscal agent the second wall
53:19
Montague Norman came for an old banking
53:21
old an international banking family he
53:24
was a former partner of the London
53:26
investment banking firm brown Shipley &
53:28
Company which was the New York branch or
53:31
whatever Brown Brothers Company in New
53:32
York raised international banking for
53:35
investment banking firm and he
53:37
personally had worked in
53:38
and Montague Norman worked in the Brown
53:40
Brothers & Company in New York for
53:41
several years and his grandfather had
53:43
been a partner in the firm the whole
53:44
tradition in the family bond brothers
53:47
later of course becomes Brown Brothers
53:48
Harriman and was many ways associated
53:54
with the house of Morgan and this
53:55
international banking consortium so we
53:59
have the Morgan thread running through
54:01
Lucarelli mama Svengali influence and
54:03
all the restaurants are reinforcing the
54:04
two of them and you can we will pick
54:06
take our um take our take our choice and
54:09
which was a more important any right we
54:13
have a General Conference 1922 which
54:16
England unveils the grand the master
54:18
plan by the major plans
54:29
if you see any any resemblances between
54:31
us and Britney was that’s it it’s
54:34
virtually Breton –lens prefigures the
54:37
price of those folks and remember each
54:39
country has their own currency both in
54:42
the profits pyramid on top on top of
54:45
gold this would be science of the Franks
54:49
and so forth oppression have golden
54:53
Germans would have marks and some more
54:55
and so on gold standard size now we have
54:59
another system invented by England and
55:02
push through the whole the whole world
55:04
cold cold the Gold Exchange standard and
55:08
no big the new rapid massive language
55:10
for over to come up with in the country
55:14
conference gold exchange damage
55:18
everybody everybody the same thing as
55:21
the old oil saying same thing just for
55:22
more economical well he kind of my son
55:24
reserves everybody banker talks about he
55:27
kind of money reserves and look head for
55:28
the hills
55:30
these inflation is ahead of those coming
55:32
so the theory now is only other
55:36
countries Vulgaria and Greece and Latvia
55:39
Norman others put the pyramid their
55:40
stuff on their own gold supply nobody
55:43
supposed to have go anymore it’s
55:44
absolutely send all of them the
55:46
Washington the London that was the
55:48
concept so only the other companies
55:50
Bulgaria also has a vocalist mariota
55:52
Bulgarian cousin and he is their
55:55
permanent Bulgarian that’s on deposits
55:57
on top of now I’m not going over Laura
56:00
that Goa but of town the British Pound
56:03
or the balance and same thing happened
56:09
his reason so we’re talking how will you
56:11
guys have another word this whole an
56:14
international system of really five
56:16
permitting them to the posits on top of
56:18
a pound it wasn’t a cup of for up of
56:21
sterling reserves crown still exerts a
56:23
hole in London consisting of you know
56:27
the bank of causes in London with
56:28
short-term Treasury bills and then goes
56:31
on on the panel is supposed to determine
56:33
top of dollars the British with me
56:37
holding up moving going so much with
56:39
dollars these two crimes
56:41
these two base currents that you know
56:43
call of a key currency so so several
56:50
banks that are told and induced in their
56:52
arms twisted aside let’s take them so
56:54
that’s why mess around go go we’re going
56:55
for duck don’t keep their money and one
56:57
of them keep it and wash it keep them
56:58
especially London and it’ll be earning
57:01
interest for you and so for and so on
57:02
what happens the result of this coming
57:05
diabolic scheme is Britain has a deficit
57:08
the balance of payments but nobody will
57:11
yeah Romania Greece etcetera that they
57:13
don’t cool I’m pretty sure to retain
57:14
goal anymore because they using the
57:15
pounds of the reserves the firmer their
57:17
own stuff on top of so this looks like
57:20
an endless thing it won’t buy a new
57:21
magical magic thing it’s like a
57:23
perpetual motion machine as far as
57:25
mentioned and the day well boys it’s
57:28
written here the flight as much they
57:29
want effing to the balance of payments
57:31
and the money flows that but instead of
57:33
the France or Germany whatever calling
57:34
upon written for redemption
57:36
they use these pounds as part of their
57:38
own life earlier in the face of money to
57:40
supply a permit on top of that and bring
57:42
can and fight forever and oh and no
57:44
retribution hundreds of the chronic this
57:46
unfortunate about having we Bretton
57:47
Woods in 1944 so 1970 wanted something I
57:52
think pushes Britain out of the key
57:53
currency intake so that’s essentially
57:55
it’s essentially the same the same thing
57:57
of thing and retribution comes
57:59
eventually but it takes up quite a lot
58:02
so Keynes the famous statement is of the
58:06
long run world debts we shouldn’t worry
58:08
about the long run that’s one of the
58:09
jokes of history is that we are late
58:11
we’re now in the long run we came to
58:14
that over here exchange panicky currency
58:26
of course is really required obviously
58:28
determine it tell the probably you don’t
58:30
need any gold coins anymore forget gold
58:31
coins ISM not like a barbarism
58:34
give it away to your kids at Christmas
58:35
made me but I said I forget it
58:37
and so even so Britain and of course
58:41
these other countries don’t redeem their
58:42
money in global anymore they Ridhima
58:43
then and go poison $29 billion I redeem
58:47
it at all their ideas leave gold for
58:50
your international transactions
58:52
transaction nobody on the gold bar is
58:55
parks mission go by the other they have
58:57
something like another hundred dollars
58:59
in forever
58:59
and they say can’t take the bar down I’m
59:02
the gold coins I’m used by and by
59:03
everybody everyday transactions if you
59:06
can’t redeem money and unless them on a
59:08
gold bar then you’re limiting the whole
59:10
fate of international trade and two big
59:11
big business and so forth you’re taking
59:13
gold out of the system in effect so in
59:15
addition as a Colorado only change that
59:17
we have a gold bullion only the United
59:21
States remains on gold coins and we’re
59:22
this kind of discourages most as much as
59:24
possible we’re laughing they’re trying
59:25
to sneer at say you know okay you could
59:28
you can get gold coins if you want
59:29
that’s really you know you’re really
59:30
brink being pretty ridiculous you’re an
59:31
old rube and you don’t understand modern
59:33
banking but we throw or at least
59:37
nominally on gold coin standard and the
59:39
other countries not be more
59:41
sophisticated than when filing
59:42
everything on top of the dollar on top
59:43
of the panel and a third a third arm of
59:47
this as I mentioned is a pregnant
59:49
inducing or forcing Bulgaria Romania
59:51
Greece to go back at over at values
59:53
lattes and we’re valued drop phones and
59:55
cetera in order to hurt their exports
59:59
and stimulate British exports to those
60:01
countries they were able to do and also
60:04
those companies which were back where –
60:06
back were to have a central bank Britain
60:08
force them to have a central bank if you
60:10
don’t have a suburb I you can’t really
60:11
inflate very well can’t play your part
60:13
only a great General Conference game so
60:16
but bringing controlling money you know
60:19
Minerva’s now on as agents theoretician
60:21
patrolling the financial committee of
60:23
league of nations uses their fantastic
60:25
political economic clout that brotherly
60:27
guys in a line sort of a several banks
60:29
world I’m gonna come back in the gold
60:30
bullion standard low exchange standard
60:32
ever over valuables law hey and
60:33
suffering cetera
60:34
essentially Britain was running and then
60:36
one way or the other the the the
60:42
monitoring of financial systems of the
60:44
following at least the following
60:45
countries in Europe Austria Hungary
60:46
Danzig
60:47
Estonia Greece Bulgaria Belgium Norway
60:50
Italy Portugal Yugoslavia Poland Romania
60:52
virtually all of Europe the exception of
60:55
France which is gonna go back a hard
60:57
money but France was induced by British
60:59
pleading your other knees please don’t
61:02
fall on sterling you’re enough sugar
61:04
whole system and so France was piling up
61:06
sterling reserves also all of this was
61:10
done incidentally with conjunction of
61:11
cooperation on the paternal blessings of
61:13
JP Morgan and company which helped as
61:15
much as they could and fueling the
61:17
finger lending money to the bank of
61:18
Yugoslavia to get the thing going so
61:20
forth okay but the key to making this
61:24
thing work with the cooperation of it
61:25
all a little slap down here big country
61:29
with continuing our gold coin standard
61:31
puts me the base of the song and we have
61:33
to keep inflating we had that we had to
61:35
make sure that Britain wasn’t losing too
61:37
much gold to us for their inflationary
61:39
policies we obliged to be obliged of
61:46
them as soon as Newman was appointed man
61:48
fight during during World War one
61:50
Benjamin strong sons in my letter are
61:52
hastening the promise of services loudly
61:55
phrase letters I remember it he’s almost
61:58
like you know pledging your fealty to
62:00
your master you promised prejudice do
62:04
everything he can to help them and in
62:06
1920 Norman start making these annual
62:08
trips the United States to see strong
62:09
and strong makes trips to see Norman on
62:11
such a sucker and they have this secret
62:13
thing and then I touch the sound of
62:15
Tobin so forth several big inflationary
62:19
impetuses
62:21
one of them of the first big one was
62:24
1924 when when the Federal Reserve
62:28
System enters the open market they came
62:30
to my store and boy there’s almost no
62:32
amount of government securities in order
62:34
to push down interest rates and inflate
62:36
the money’s flowing on his plays and
62:38
keep prices up again what had happened
62:40
was it supposed to smooth away for great
62:42
brick wait Verdun was gonna go back to
62:44
go in 1925 and so we had to inflate
62:50
there to help us the smoothest process I
62:52
want actually what had happened wasn’t
62:54
the pound after Britain analysis of the
62:56
fact we’re going back of a panel 2046 in
62:59
1925 the palate or shoots up again it
63:02
goes back to about 470 but 4070 says but
63:06
in 1923 from 1923 1924 the British
63:09
financial policy was so on sound so
63:11
inflationary
63:12
but the pounds dropped anyway
63:13
you know the Breton was saying one year
63:15
but going back a 42-6 slowly value of
63:17
the pound of an international foreign
63:19
changing worker Thompson four dollars
63:21
and seventy cents at four dollars and 32
63:22
cents for him in 1924 so Brendan was a
63:24
very bad shape here is really telling
63:26
everybody in 1925 were going back again
63:28
486 and forth over you guys will topple
63:30
all this stuff in great shape and here
63:32
they are here on the world market
63:34
the powers down of 432 so this is a
63:37
crisis so strong the woman calls on
63:42
straw to inflate strong gun fights and
63:44
the British Pound strengthens again goes
63:47
back up to four dollars and 78 cents
63:50
United States prices are rising actually
63:52
the two things involved in American is
63:54
linking United States well the Federal
63:56
Reserve buys of government securities in
63:58
the open market but doing to think when
64:00
you’re deflating the money supply bank
64:03
deposits and pushing right the u.s.
64:05
prices up you’re also at least
64:06
temporarily pushing down American
64:08
interest rates
64:09
I received your government clubs in and
64:10
by the oil and stuff and the man for
64:13
bond goes up with me the interest rates
64:14
full so you’re pushing down interest
64:17
rates and when you’re pushing down
64:18
interest rate much much of a short-term
64:20
world capital at least and even
64:22
long-term appends on now waking at a
64:25
higher interest return if you can get 7%
64:27
of my place in 3 percent of England
64:29
there’s not too much world capitals can
64:31
remain in anyone’s you have this
64:32
tendency to uniformity so we also try to
64:35
push down our just right in order to
64:36
keep written from losing gold for the
64:38
United States
64:38
double double pronged thing and then
64:41
work they worked in the sense that
64:42
immediately a few months the pound
64:46
strengthened against Evan T eight and
64:48
they’re ready to go back to the Skoll
64:50
exchange standard I mean or the ruling
64:51
standard as in the deliberate and libera
64:56
libera policy his strong rights to
64:59
Andrew loan May 17th 1924 and you know
65:04
the Secretary of Treasury of course we
65:05
don’t have to wonder which interests
65:07
Andrew Miller represents addendum
65:08
Alexandra lamella Google Pittsburgh okay
65:13
plus the Gulf oil company Cohen a bunch
65:16
of other thing anyway strong rights the
65:18
Melanie says the burden of this
65:20
readjustment why does he means well it
65:22
starts off by saying we have to raise
65:24
you nice place price levels well both of
65:26
the great breadth and we have
65:27
lower America interest rights for all
65:28
the regular Great Britain in order to
65:30
permit Great Britain the quote returned
65:31
the goal really wasn’t much a return
65:33
really advancing onto this peculiar new
65:35
abortion of the system know right so
65:39
strong rights quote the burden of this
65:40
readjustment must fall more largely upon
65:43
us than upon them Great Britain it would
65:46
be difficult politically and socially
65:47
for the British government on the Bank
65:49
of England to face a price liquidation
65:50
in England and words to take the route
65:52
of deflating there will be difficult
65:54
politically and socially in the face of
65:56
the fact that their trade is poor they
66:00
have over a million unemployed receiving
66:01
government aid so so we’re gonna do this
66:05
to help Britain so for example while in
66:10
1922 1923 American interest interest
66:13
rate American bills in New York was
66:15
above the rate in London by mid 1924
66:18
photo Reserve System manage to push
66:19
interest rates in New York below those
66:21
of London let’s check the goal of money
66:24
also 1925 at Heights help by the New
66:28
York Fed loans Great Britain a line of
66:29
credit in gold about the two hundred
66:31
million dollars and be there in case
66:33
they need it in any moment and JP Morgan
66:36
& Company
66:36
Baltimore’s is a line of credit of one
66:38
hundred million we subsidize us
66:40
complicated waged by the Federal Reserve
66:41
System also in case the Bank of England
66:47
and similar credit by New York Fed was
66:54
was similar lines of credit was extended
66:56
again to permit this whole the whole
66:58
these country to come back to this kind
67:00
of system to a central banks of Belgium
67:02
Poland Italy